EUR/USD: what will Greece do?

In January EUR/USD fell to the lowest levels since September 2003. The single currency has reached 61.8% Fibo of the 2000-2008 advance in the 1.12 area. In this zone euro has managed to find some support as investors took profit on their short positions.

In line with expectations left-wing coalition Syriza won the parliamentary election in Greece. The party has quickly found a coalition partner and formed a government. Although many expected the new Prime Minister Alexis Tsipras to start a fierce confrontation with the nation’s creditors – the so-called Troika of the EU, the IMF and the ECB – his relatively moderate approach has brought some relief to the market.

Greek debt accounts for 28 billion euro or 178% of GDP. The nation has to pay 4 billion on March 20 and 6.5 billion on August 20. Greece doesn’t have sums like that and the only source to get the money is from the same Troika creditors. The deadline to make an application for a new loan needed for servicing the debt runs out on Feb. 28. The new government has promised to push through the write-off of a large part of the nation’s nominal debt. Officials from the ECB and the IMF have already underlined that they are against such scenario. Still the creditors might agree to prolong the term of Greek debt or to lower the interest rate. This would significantly improve the nation’s financial state.

If the political tensions in the euro area ease, euro’s decline may slow down. Next support is at 1.1100 and 1.1000, while resistance is found at 1.1515 and 1.1650.

At the same time, comments of the new Greek authorities sound very harsh as they want a new deal with creditors. Finance Minister Yanis Varoufakissaid that the nation doesn’t “want the 7 billion euro”, but wants “to sit down and rethink the whole program.”